There are many great things about getting a loan, but it can be overwhelming if you’re unsure how the process works. Lenders have multiple prerequisites for loans. However, the good news is that these vary from lender to lender. A poor credit score is not damning since multiple lenders offer no credit check loans. This guide covers alternate ways to pursue loans for beginners.
Lenders aren’t looking for perfect credit.
You can rest assured that your credit score is just one piece of the puzzle. Lenders are looking for good risk and use your credit score as one piece of information in their decision-making process. However, they also look at your income and assets (among other things). If you have bad credit but plenty of money saved up and/or a good job history, lenders might be more willing to roll the dice on you than someone with great credit but no money saved or a steady income.
It’s important to know that while lenders will run a background check to find out if there are any red flags—like tax liens or bankruptcies—they won’t know about non-traditional loans like payday ones unless you tell them about it yourself.
Lenders have different minimum credit check requirements.
Lenders have different minimum credit check requirements. Some lenders may not require any credit check, while others might request one on top of other checks you’ve already passed. If you are applying for a loan with a lender who requires a credit check and doesn’t meet the minimum criteria, your application will most likely be rejected.
Lenders can have varying minimum requirements depending on the loan type being applied for. Personal loans and mortgages generally tend to have higher minimum scores than auto loans (though this isn’t always true). It’s also important to keep in mind that some lenders may ask for additional information regarding your finances before qualifying you for a loan—and as such, might require an even higher score than what they initially set out as their minimum requirement.
A higher credit score can save you money.
A higher credit score can save you money. Because lenders assess the likelihood that a borrower will repay their loan on time, they can use your credit history to determine how much interest they’ll charge you. The higher your score, the lower your interest rate; the lower your interest rate, the more you will save.
Most lenders don’t care about your past mistakes.
A big misconception is that lenders will look at your credit report, see your past mistakes and refuse to give you a loan. That’s not exactly how it works.
Most lenders don’t care about your past mistakes as much as they want to know about your ability to repay the loan. So instead of looking at each item on your credit report individually, they’ll look at it in context with other factors (like income and savings). These lenders often offer no credit check loans that are perfect for you.
You can improve your credit score.
There are ways you can improve your credit score.
- Pay off credit cards and other loans. Paying down your balance will improve your FICO score if you have a lot of debt.
- Make payments on time. This includes student loans, mortgages, auto loans, and even rent payments if those are reported to the credit bureaus. If you miss a payment or are late with one entry on your report from 30 days ago to seven years ago (depending on how long it’s been since the last time), it could lower your score by as much as 100 points or more.
- Keep balances low relative to limits for each account type—e.g., don’t keep more than 30% of your available limit in any one account type at any given point in time; this helps show that you’re responsible with spending money on these types of accounts and helps lower risk associated with lending money based on someone’s potential spend habits going forward into the future after they’ve received their loan approval request. However, keep balances high enough so creditors still have an incentive not to want them to be too low, amounting to zero dollars and close to negative dollars value.